BRADLEY OLSON, Copyright 2009 Houston Chronicle |
October 26, 2009

Related Stories

Harris County taxpayers may have to inject up to $7 million a year into the Harris County-Houston Sports Authority for the next two years due to a financial crisis sparked by the souring of bonds used to build Minute Maid Park, Reliant Stadium and the Toyota Center.

Facing balloon payments on $117 million in variable-rate bonds, the authority now is obliged to pay off the debt in five years instead of 23 years. That would require $24 million a year — a figure that, together with more than $30 million in additional obligations, would push the authority to the brink of insolvency.

The alternative: Convince major banks to provide lines of credit that would give the authority a two-year window to refinance. That would cost $7 million a year.

But those deals would create a new set of problems: The authority would have to take $7 million a year now used for stadium maintenance and the expenses of the Harris County Sports and Convention Corporation and spend it on repaying the loans. To make up the difference, Harris County may have to pick up some of those expenses with property tax revenue, a step that some say indirectly violates stadium boosters' promise that taxpayer dollars would not be used to pay for the new venues.

Using that $7 million to pay debt would create a budget hole for the convention corporation, one that would have to be filled by Harris County, Sports and Convention Corp. Executive Director Willie Loston said.

The Authority's chairman, however, said taxpayers will not be affected.

“What's happened in the financial world has clearly created additional problems for the sports authority,” said J. Kent Friedman, chairman of the authority board. “But no matter what happens here, there's absolutely no way the taxpayers of Harris County or the city of Houston could be negatively impacted.”

Friedman said that even in a worst-case scenario in which the authority cannot make its payments, that failure would not impact taxpayers, only investors in its bonds.

Troubled debt

The sports authority was set up to manage the $1 billion in voter-approved bonds that financed the construction of Reliant Stadium, Toyota Center and Minute Maid Park.

The authority's debt ran into trouble about a year ago when MBIA, a firm that insured its bonds, was downgraded by analysts. Investors fled from $117 million in variable-rate bonds, forcing the bank JPMorgan Chase to buy them up, under its contractual obligation with the sports authority. JPMorgan then converted the debt into a loan and, per the contract, required payment in five years instead of 23. Those payments amount to about $24 million a year.

After expenses and debt service, the authority nets about $12 million annually.

In addition, the authority had entered into an interest rate swap on the $117 million with UBS, which allowed the agency to exchange its variable interest rates for fixed ones. When the bonds soured, the swap went awry, creating an obligation for the authority to post $30 million to $35 million in collateral.

Without a lifeline, the two payments, which could total nearly $60 million, would deplete most of the authority's reserve funds and push it toward default.

Because investor ratings firms require bond issuers to hold reserves, depleting them significantly could cause the authority's bond rating, already just one step above junk status, to be downgraded. That would significantly darken the prospects for what authority officials acknowledge is the only long-term solution: refinancing.

Authority officials are pinning their hopes on a pair of potential deals. The first would be a line of credit with JPMorgan to cover the $117 million. The second is another line of credit with UBS that would allow the authority to avoid paying the collateral on the swap.

Both deals would greatly smooth out the authority's financial challenges. But they also would force Harris County to grapple with an unexpected $7 million-a-year budget hole.

To make the deals work, the authority would need to pledge more of the money from parking fees, the Houston Texans and the Houston Rodeo at Reliant Stadium for debt service. Currently, that money is used by the Harris County Sports and Convention Corporation for operating expenses and stadium maintenance.

Additional millions

Already, the authority's fiscal woes have triggered a requirement that the sports corporation make a $2 million debt payment every six months from parking fees. If the deals go through, an additional $3.2 million a year of those funds also would be required, county and authority officials said.

The Harris County Commissioners Court appeared to make its first move to fill that hole late last month, when it voted to transfer $2 million to the corporation to fill the budget gap left after its first payment.

But the court today will consider rescinding that transfer because the authority did not ultimately need the first $2 million injection of cash as expected, said County Financial Services Director Edwin Harrison. Any county transfers to the sports corporation will come from hotel occupancy taxes, he said.

Jack Yuran, director of financial planning in Harris County, said he and other officials are trying to come up with a way to free up additional hotel tax funds to make it possible for their use by the sports corporation.

One possibility under consideration is to move stadium utility costs — usually around $11 million a year — from the HOT tax budget into the tax-supported general fund or a special revenue fund, Yuran said.

Numerous county and authority officials insisted that the use of property tax funds to pay for expenses that were covered by money that will now go toward stadium debt does not represent a breach of the promises made to taxpayers.

“We can never and we won't use ad valorem taxes to pay for anything for Reliant Stadium,” Yuran said. “It's not a likeable situation, but we're working very diligently.”

Former Harris County Tax Assessor-Collector Paul Bettencourt, a longtime critic of the stadium deals who has called for the authority to be dissolved, said those claims are misleading.

“It's literally like watching a train go over a hill,” he said. “The heavy engine goes over the hill first, and it pulls the whole train over, all the way to the caboose. Somebody's going to pay at the end of this train, and that's going to be the taxpayers.”